B2B Market Segmentation: Looking Beyond SIC
The reasoning behind market segmentation is straightforward: by subdividing your markets into groups with similar needs and behaviours, you are better able to optimise your offerings, marketing and sales activities to respond to the needs of these groups.
But when it comes to the practicalities of segmentation, it’s all too easy to take a superficial approach that limits the effectiveness of the strategy. Data-wise, you can rely too much on the ‘low hanging fruit’: i.e. segmenting your market based exclusively on SIC codes and other publicly-available information. This tells you who the companies are, but often fails to get to the heart of why they want to buy and what problems they need to solve.
For a better segmentation strategy, here’s how to look beyond the basic verticals…
The limits of SIC
Let’s say your business sells testing apparatus for use in the manufacture of electrical equipment. Broadly, different marketing and sales approaches will be required for different types of manufacturers.
As an obvious ‘first cut’ segmentation exercise, you get several lists of manufacturers based on SIC (Standard Industrial Classification) codes – e.g. 26600 Manufacture of electromedical equipment and 27310 Manufacture of fibre optic cables. Ready-made lists can be bought relatively cheaply, or you could even compile your own based just on Companies House data.
This is useful as a way of delivering a ‘first cut’ list of potential customers based on standardised and easily-comparable data.
However, the danger is that you regard such lists as ready-made segments. Be aware that a particular code is not definitive confirmation of what a company actually does. It could have pivoted since its last accounts were published (updating your SIC is rarely a business priority). It might be involved in multiple activities, and the SIC fails to reflect its true focus.
Digging slightly deeper (again, based on publicly-available information) might reveal secondary information, such as company profitability, turnover and footprint across different territories. But actually, all of this might tell you very little about the company’s purchasing needs, its goals, the information it needs in order to purchase and how you are perceived in light of the competition.
Optimising your segmentation strategy
Here are some of the enquiries you should consider carrying out in order to supplement basic SIC data:
Understanding company decision making units (DMUs)
Who do you need to communicate with inside the company? What information do they need before signing off on procurement decisions? Will you need to prepare different layers of information to a range of decision makers? To get this information, you will need to do some primary research on the companies themselves.
It may, in fact, be more appropriate to segment your market by DMU characteristics than SIC.
Use of proxy data
Once you have researched what really makes these companies tick, and how well aligned your products or services are to their needs, it is then usually possible to expand your findings to a broader universe of companies through the use of ‘proxy data’. This type of information is usually readily available, and can also produce useful insights into how a company operates.
Have there been any recent senior appointments? If so, what is the background of the new appointees? Is the company recruiting in an area linked to your product offering? Has the company recently received investment funding?
These are all examples of proxy indicators of company focus and life-stage. They can be gathered from desktop sources and allow you to apply the learnings from your needs analysis to a broader number of companies.
This type of nuanced approach can result in much more useful segments based on business pains, growth objectives, procurement methods and likely responsiveness to different types of marketing material.
For help with moving away from basic SIC segmentation to a more valuable approach, speak to White Space Strategy today.